Global oil prices, struggling to regain the momentum it lost after the dramatic fall in mid-2014, have forced many oil exporters to begin diversifying their economy away from its over-reliance on hydrocarbons.

Like other oil exporters in the region, Kuwait, where oil accounts for more than half the GDP and over 90 percent of its export earnings, has been severely impacted by the prevailing low oil price scenario.

Luckily for Kuwait, wealth garnered from years of budget surpluses have prudently been invested abroad through the Kuwait Investment Authority (KIA), the world’s oldest sovereign wealth fund. In 1953, eight years before the country gained independence, remarkable foresight by the country’s then leaders led to the establishment of Kuwait Investment Board, the predecessor of KIA. The Board was charged with operating Kuwait’s oil revenues credited in a Bank of England account in London. Following independence, the KIA was established in 1982 as an autonomous governmental organization and tasked with managing the country’s growing financial assets.

Today, the KIA handles over $524 billion in assets and is the fourth largest sovereign wealth fund in the world. The KIA exerts a constructive impact on Kuwait’s financial sphere by assisting in institutionalizing the market, and by investing, promoting and financing local businesses. Nevertheless, the primary role of the KIA is to provide liquidity to the government treasury and to invest Kuwait’s surplus hydrocarbon revenues in global assets, with the aim of ensuring the country’s economic sustainability and welfare of its future citizens.

But, in this era of sluggish global growth, even the KIA with its gargantuan assets is finding it a challenge to consistently maintain attractive returns from its assets. This is further exacerbated by the need to support the government’s repeated budget deficits brought on by falling oil revenues.

While there have been repeated calls in the past to diversify the economy and wean it away from its addiction to oil, the current low oil price scenario and sustained budget deficits have given an added impetus to such demands.

With limited resources other than its oil revenues to catalyze the diversification of the economy, the government is increasingly looking at private capital, both from within its borders and through Foreign Direct Investment (FDI) flows into the country. Kuwait has traditionally been regarded as the regional laggard when it comes to attracting FDI — data from the UN shows that in the five-year period from 2011 to 2016, the amount of FDI flows into the country declined from $3.3 billion to $275 million. The government says it is now committed to changing this situation.

The urgency of increasing FDI flows has obligated the government to enact new laws, or reform existing ones, as well as establish specific entities to attract and manage investments into the country. It is in line with this fresh thinking that the authorities passed the new FDI Law in 2013. The new law aims to improve Kuwait's investment climate and offer better incentives to attract investors, including 100 percent ownership of companies in most sectors of the economy, and a range of favorable tax and customs-duty rates. The new law also established the Kuwait Direct Investment Promotion Authority (KDIPA), as a one-window outlet to provide licenses and to cater to other operational needs of investors.

Another fillip to promoting FDI flows came in 2014, with the existing Public Private Partnership (PPP) Law of 2008 being revamped to provide, among other things, financial protection to investors in development projects. Simultaneously, the government replaced the previous Partnerships Technical Bureau with a new body, the Kuwait Authority for Partnership Projects (KAPP) to oversee PPP projects and identify potential future opportunities for such projects. The first project under the PPP model, the Al-Zour North Independent Water and Power Project (IWPP), was successfully completed in 2015 and now serves as a showcase for more joint ventures through public-private cooperation.

In support of FDI initiatives, Kuwait's Council of Ministers also agreed to set up the Permanent Committee for Streamlining the Business Environment in Kuwait, headed by the KDIPA and with technical assistance from the World Bank, to improve the business environment in Kuwait and make it more attractive to investors by enhancing the ease of doing business in the country.

In addition to FDI flows the government is also looking at foreign portfolio investments in Kuwait Stock Exchange (KSE) as a means to further engender economic growth and diversification in the country. The, until then, haphazard functioning of KSE was streamlined in April 2016 with the establishment of Boursa Kuwait, a private entity that was charged with overhauling KSE and making it more attractive to international investments. By early 2017, Boursa Kuwait, working in cooperation with market regulator, Capital Markets Authority, had begun launching market making regulations and implementing changes to the profile of KSE.

It is not just private capital that is getting on the economic diversification bandwagon. Recently, the state-owned Kuwait Petroleum Corporation (KPC) — the parent company that heads all upstream and downstream hydrocarbon activities in Kuwait — said that it would soon enter the global oil trading market.

In late July, KPC announced that it was in talks with several commodities dealers as well as international oil companies with the aim of forming joint ventures to trade in refined oil products. The joint venture, which is expected to begin operations some time by early next year, is seen as a move by KPC to gain more value from each barrel of oil it produces, by scraping back some of the profit that global oil traders continue to make through buying and selling the country’s oil.

Economic diversification is critical to sustainable growth and development of the country; it is refreshing to see Kuwait beginning to seriously implement its diversification plans.